r2i forum

I am not able to see I - Bonds rate prediction , I am sure RRK must have put some numbers together to complete this.

Can some one direct me there ??

Thanks !

dear hawapani,

how are you doing ? I thought every one forgot about I bonds. So, you still remember them, dont you ?

Ok, since you are interested. I checked out the figures.

1. First BLS started publishing CPI numbers to 3 decimal places. There are several dependents for CPI numbers, so, it makes sense to increase the decimal places.

Effective with the release in February 2007 of the January 2007 Consumer Price Index (CPI), the Bureau of Labor Statistics (BLS) began to publish its consumer price indexes rounded to three decimal places. Percent changes will be calculated from the three decimal place indexes. Those percent changes will continue to be published to one decimal place. For additional information, please see "Publishing Consumer Price Indexes to Three Decimal Places: Questions and Answers".

2. Sep 2006 CPI was 202.9; Mar 2007 is 205.352; 1.21% change. So, the next variable part ofinterest rate will be 2.42%.
Combined with 1.4% fixed part, the yield will be 3.85%.
Much below the 5.1% yield of Vanguard Prime MM. So, the I bonds are not a "BUY" yet.

I usually compare them against 12 months FD or 15 months FD. I am not going to waste my time this time. No use. they dont match. If your time frame is around 1 year, dont even think about buying I bonds now.

3. People are not buying I bonds now. link

It's showing a net negative growth for the 1st three months of 2007 (sales - redemptions).

Year ........ Net sales (millions)
2004 ........ $4105
2005 ........ $2766
2006......... $4840
2007 (ytd). $-924

This trend shows people are redeeming their bonds and investing them elsewhere. I also sincerely hope people dont throw away I bonds with more than 2% fixed rate for today's yield.

4. My views on I bonds haven't changed. I said before, if you have less than 1.4% fixed part bonds, sell them. If you have 1.6% reevaluate the financial goals and see if they still fit. If you have 2% or more, hold them. In short term you may not see great yield, but it will work out well in bond portion of AAP.

5. Last but not least, dont fall in love or get emotionally attached with any investment. If you do, you will show blind eye to losses. I know few of you are addicted to I bonds, but pls realize, it doesn't do any good.

disclaimer: I have no I bonds with less than 1.6% fixed part. All were sold.

Thanks RRK !!!

The only reason I wanted to check since they are tax deferred but I think they are too low to buy , may be Treasury increase FR this time to make it more attractive.

I know next year my tax bracket will be low so I thought let me buy some now and dump it later..

hawapani,

http://www.treasurydirect.gov/news/pressroom/currentibondratespr.htm

US Govt has reduced the fixed rate to 1.3%. The variable rate is as calculated by me in #2 ( 2.42%). So, the total yield is 3.74%.

New EE bond is even worser. 3.40%

RRK!
When I looked at this thread then I remembered that I bought I Bond in 2005. Do you think it is worth to keep it for some more time?

IAAAA 08-01-2005 4.32% $16,000.00 $17,139.20
Could you please comment?

8/2005 :

I think it is 1.2% FR I bonds. Sell them..

Thanks! RRK. I redeemed I bond today and currently parked in ingdirect. I don't have any more bonds. Planning to put them 1-yr CD since I don't need the money immediately. Do you have any other pointers /suggestions for fixed income investment? I balanced all my fixed income in 401k/ingdirect/IBond. All my stocks investment in vanguard. These are based on AAP suggested by desi in 2005

Thanks! for all your help.

check bankrates.com for good CD rates.

Go for 1 year CD or Vanguard Prime Money Market to park money that you dont need for 1 year. Prime require min 3K balance.

RRK

There are different motivations for people buying I-Bonds - tax sheltered growth, tax free use for certain situations etc.

The current rate of return is one of the factors we need to consider when buying the I-Bond. However, another important factor, IMHO, is the long term prediction of where the US inflation is heading. If based on the current US Government policies, your prediction is that the inflation will rise in US, then the rate of return may be higher later. Hence, it may be worth holding on to the I-Bonds especially if you are targeting to use this for purposes that avoids taxes on them. Do you agree?

Thanks